Ahead of the US interest rate decision on Thursday 17th September, Nancy Curtin, Chief Investment Officer, Close Brothers Asset Management, comments on what to expect:
“Whether the Fed decides to slightly raise interest rates this month is actually pretty irrelevant. What matters here is less about the figures and more about the language.
“On the ground, August job numbers were typically soft and should be viewed with a pinch of salt, while wage growth has been gathering pace but is nothing to write home about. Overall though, the economy is chugging along at a sustainable pace and for that reason, the Fed may think it’s in a decent enough position to raise rates in spite of concern over the effects of China slowing, and recent market turbulence. However, what markets will be focussed on is what Yellen says. The two extremes would be a hike with hawkish comment, or no raise accompanied by a dovish tone. A rise of 0.25% or greater and a hawkish stance would be a surprise, and would certainly send shockwaves across the market, as it would suggest rate normalisation will be far sharper than anticipated. On the other hand, an overly dovish comment and leaving rates untouched will cause concern over the strength of the US economy, leaving investors to question whether Yellen knows something they don’t.
“The middle ground of a hike and a dovish comment, or no raise and a hawkish comment shouldn’t rattle the markets. As ever with central banks, communication will be vital.”